Bank of Canada takes to Twitter to set the record straight on ‘printing money’ allegation

OTTAWA — As the Bank of Canada tries to rein in searing inflation, the central bank is engaging in another fight: against misinformation.

Over the past few weeks, the central bank has used social media to engage the public on the economy, explaining how inflation works and what it is doing to bring inflation back to its 2% target. However, in its most recent Twitter feed, the bank went beyond the economic explanation and aimed directly at a joint attack on its policy decisions during the pandemic.

“#YouAskedUs if we printed money to fund the feds. We didn’t,” the Bank of Canada tweeted Aug. 25, followed by a series of tweets refuting the claim.

While central bank officials normally hold speeches and other events to communicate their thinking and set expectations, Laval University economics professor Stephen Gordon says his audience has traditionally been smaller than it is today.

“The only people paying attention are market insiders and experts. And those are usually the only people they have to talk to,” Gordon said.

Today’s high inflation environment and central bank politicization have broadened the audience, with more Canadians concerned about rising interest rates and the high cost of living. Along with this heightened interest, there has also been a level of mistrust in the operations of the Bank of Canada and a misperception that it has been printing money during the pandemic.

Conservative leader Pierre Poilievre has sharply criticized the Bank of Canada, promising to fire Governor Tiff Macklem if he becomes prime minister. Poilievre has not explained how he intends to fire Macklem given that the Bank of Canada Act does not give that power to the federal government.

He also repeatedly claimed that the central bank printed money to finance federal spending and therefore caused inflation.

However, the Bank of Canada and economists say that is not what happened.

« There’s always been this expression of the bank printing money every time it engages in these kinds of policies, but that’s not really what’s happening, » said Jeremy Kronick, chief executive. in Money and Financial Services Research at the CD Howe Institute.

The policy Kronick is referring to is quantitative easing, a move the Bank of Canada has attempted to explain in a series of tweets.

“We bought existing government bonds from banks on the open market. Why? This helped unlock frozen markets at the start of the pandemic. This allowed households, businesses and governments to access finance when they really needed it,” one of the tweets said.

« We did not print money to pay the bonds, » the wire continued.

Sometimes called QE, quantitative easing is a relatively new tool used to keep money flowing when interest rates are already hovering around zero and can no longer be reduced. It caught the world’s attention when it was used by the US Federal Reserve in the aftermath of the 2008 financial crisis.

The Bank of Canada first used this policy tool when the pandemic hit to combat the risk of deflation. It purchased government bonds from financial institutions using settlement balances, or reserves, which it deposited in the financial institutions’ accounts and paid interest thereon. As the bank stated, these reserves are not the same as cash.

« That buying of the bond lowers the interest rate on that bond and therefore other interest rates, making it cheaper for you and me to borrow. So that’s really where QE has its impact, not so much from the trade,” Kronick said.

The Bank of Canada began the process of quantitative tightening, where it resells these bonds to financial institutions, in April of this year.

While the Bank of Canada’s motivation to speak directly to Canadians and justify its policies is understandable, Gordon says he’s unsure of the effectiveness of its efforts given that the central bank doesn’t have much of experience in this field.

“They have nowhere near the media arsenal of people trying to promote the wrong program. So they are kind of massively outgunned,” he said.

A recent Angus Reid poll found that 46% of Canadians trust the Bank of Canada to fulfill its mandate, while 41% said they do not. The survey found that distrust was higher among people who had voted for the Conservatives or the People’s Party of Canada.

The online survey surveyed 5,032 Canadian adults and was conducted between June 7 and June 13. It cannot be assigned a margin of error because, by generally accepted survey industry standards, online surveys do not randomly sample the population.

In the future, the Bank of Canada plans to expand its educational programs on the economy and the role of banking.

Kronick says what will ultimately help foster confidence in the Bank of Canada is to get inflation back on target.

« What matters and what will regain that confidence is for the bank to get inflation under control. »

This report from The Canadian Press was first published on August 31, 2022.

Nojoud Al Mallees, The Canadian Press

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